Reduction in sales tax, elimination of corporate income tax may be on the table in Kentucky

Ky. House speaker favors rollback of sales tax

FRANKFORT, Ky. — House Speaker Greg Stumbo said he’d like to see a rollback of Kentucky’s sales tax to 5 percent and the elimination of the state’s corporate income tax.

The Prestonsburg Democrat on Thursday told reporters that those are two of the options House lawmakers might be asked to consider in a tax reform proposal that could be unveiled soon.

He said the loss of revenue from those two taxes could be made up by eliminating a broad array of tax exemptions and ensuring that all residents and businesses are paying their fair share.

“We will be in a position to move forward very shortly with at least the numbers to begin the debate,” Stumbo said.

Long-standing proposals for reforming Kentucky’s tax system are getting a closer look this year because of the state’s lingering financial problems. The economic recession has hit the state’s general fund hard, creating a projected $1.5 billion shortfall over the next two-year budget cycle. That’s on top of $1 billion that had to be cut from the current budget.

Gov. Steve Beshear, who has said repeatedly that he would oppose any tax reform that includes broad tax increases, has announced some unusual steps to try to generate more state revenue. He went so far this week as to put state-owned planes, vehicles, land and other property up for sale.

Beshear and key members of his administration also will take 10 percent salary reductions this year, saving the state about $227,000.

The governor is scheduled to present his proposed budget to lawmakers on Tuesday. He has been tightlipped about what it will contain, other than to say it will not include tax increases, which he fears could drive the state further into recession.

Beshear said earlier this week that he still may push for legislation to legalize slots at horse tracks to generate new revenue for the state. The issue has been divisive among Kentucky lawmakers. Such a proposal failed last year in the state legislature.

Stumbo warned Thursday that Beshear shouldn’t present a budget proposal that depends on revenue from expanded gambling that hasn’t yet been approved by lawmakers.

“The point is that, in my judgment, it would be an infringement upon the separation of powers for a governor to set that precedent,” Stumbo said. “Quite frankly, we’d literally discard his budget and start from scratch.”

Stumbo has said he doesn’t think the gambling proposal would pass either the House or the Senate. But he holds out hope for tax reforms.

Democratic and Republican lawmakers have been working together to try to hammer out an agreement on a tax reform package that their colleagues would be willing to consider. Stumbo said he believes a proposal to roll back the sales tax from its current 6 percent would help sell such a proposal.

“I personally believe that if we do it we should abolish the corporate income tax in this state,” Stumbo said. “I think that would lead to more corporate offices being established here.”

However, Stumbo acknowledged that some people and businesses would end up paying more.

“Now, it is a tax increase for people who currently aren’t paying their fair share,” he said. “I don’t consider that to be a general tax increase. I consider that to be a fairness issue.”

(This version CORRECTS that the governor won’t include tax increases in his proposed budget in the 8th paragraph.)